'Sequestions' And Answers

Lawmakers failed to avert across-the-board spending cuts to the federal government, and they officially kicked in last week. Host Michel Martin speaks with NPR senior business editor Marilyn Geewax, and The Wall Street Journal's Sudeep Reddy about what it all really means.

MICHEL MARTIN, HOST:

This is TELL ME MORE from NPR News. I'm Michel Martin. Coming up, you've probably heard the news that Internet giant Yahoo! is ending the policy of employees to telecommute. We're wondering about what the research shows about the effect of telecommuting on the bottom line and on employee morale. So we're going to dig into that later this hour.

But first, that probably seems like a nice problem to have for some people today who are worried about just keeping their jobs because, yes, it's here - those across-the-board spending cuts that were once considered too ugly for either political party to allow. They're actually kicking in. That's because Congress and the White House couldn't reach a deal last week to head them off.

This is all being called sequestration. We wanted to know what this is going to mean for people who do business with the government or who work in federal agencies or for the economy as a whole. So we're joined once again by two of our regular guests who help us understand topics like this.

Marilyn Geewax is a senior business editor at NPR and Sudeep Reddy is an economics reporter with the Wall Street Journal. Welcome back to you both. Thanks for joining us.

SUDEEP REDDY: Thanks, Michel.

MARILYN GEEWAX, BYLINE: Hi, Michel.

MARTIN: So Sudeep, first, this was supposed to be the terrible, horrible, no-good, very bad thing that would bring both sides together. The Democrats, including the president, are mostly saying this is a very bad thing. But I want to play a bit of tape from yesterday. This is House Speaker John Boehner. He's speaking with David Gregory on NBC's "Meet the Press." And he's responding to whether he thinks this will help or hurt the economy. Here it is.

(SOUNDBITE OF TV SHOW, "MEET THE PRESS")

REPRESENTATIVE JOHN BOEHNER: I don't know whether it's going to hurt the economy or not. I don't think anyone quite understands how the sequester is really going to work.

MARTIN: But he also says, Sudeep, that he - he says he's worried about the effect on the military but he says the administration is hyping this. So first I want to ask you, is that the predominant view among the Republican caucus, that this is all hype?

REDDY: The GOP is divided on this issue of whether it is hype. There are a lot of Republicans who look at this and say these are damaging cuts. This is not the way we should be cutting any part of the government, whether it's the military or domestic programs. But another part of the Republican Party is looking at this in the context of a big fight that they've been pushing since 2010 when the Tea Party came up in full force.

And this is not really about the deficit - only about the deficit to them; it's also about a philosophical issue about the size and shape and role of government. And their goal is to shrink the government and remove its influence from our lives as much as possible. And so this actually goes toward their goal in some degree by forcing a reduction in some of these government programs that do influence our lives.

MARTIN: And so now, Marilyn, I want to go back to the part of the clip where the speaker says he doesn't know whether it will hurt or help the economy. This morning you were with the NABE. That's the National Association of Business Economics for their annual economic policy conference. What are they saying about that?

GEEWAX: They are overwhelming in their unanimity on the fact that this is a bad idea. That it will hurt the economy. Now, the economists are overwhelmingly in favor of doing something about the budget deficit but they just released another survey this morning with the latest thinking and more than seven in 10 say they expect this to hurt the economy. And they're looking at something like - the typical projection is for about a half of a percentage point of growth.

So that's, you know, that's a lot. That's probably 750,000 jobs this year. You know, we already have 12 million people looking for jobs. We certainly don't need more people without work. A lot of people will have these furloughs where their income will be reduced. So that's a federal - civilian Pentagon workers are going to have to lose one day a week of their pay over the next several months.

And that means they'll have less money to spend at restaurants, less money at the grocery store. So I think you can really say across the board economists feel very confident that this will hurt the economy in the short run. And of course there are some people, though, that would say anything we do to reduce the deficit over the long term is somewhat helpful for the economy.

MARTIN: And what about the head of the Congressional Budget Office?

GEEWAX: Yes. He was at the gathering this morning and talked about this, and really the whole point of his presentation was to affirm this idea that this doesn't cut it. We have to do much more to get our budgets in order over the long haul. For example, right now we have very low interest rates. And you know, if you went to buy a house or a car, it's great to have low interest rates. That really helps. It makes it more affordable.

So that's what's the situation for the federal government right now. They can borrow money pretty cheaply. But everyone thinks that interest rates will go higher and the Congressional Budget Office expects that it will go up quite a bit - maybe six percent by the end of the coming decade. So you know, you're looking at much higher costs to continue this deficit and debt.

And at the same you have an awful lot of baby boomers who are getting closer and closer to retiring. And that has two bad impacts on all of this. One is that when you stop working, you're not earning income so there's no income tax that can be charged against you that goes into the government's coffers. And you also start taking money out in the form of Social Security and Medicare.

So we've got a couple of things happening within a decade. Lots more retirees, fewer workers, and higher interest rates.

MARTIN: If you're just joining us, we're talking about those automatic government spending cuts. They're being called sequestration. We're speaking with NPR's Marilyn Geewax and Sudeep Reddy of the Wall Street Journal. So Sudeep, talk a little bit more about where these budget cuts really will be felt in the near term. Marilyn was talking about kind of the long-term economic impact, but in the near term do we know?

REDDY: We don't completely know how these will take affect, at least for the next few weeks. We know that by early April we will see furloughs of a very large swath of the federal workforce. That means they are going to see - they're going to lose some of their pay and that is going to trickle through the economies in their regions all over the country.

And the very difficult part of understanding this is unlike the debt ceiling or the fiscal cliff, which would have hit everyone all at once - it would've been a fairly sudden hit to the nationwide economy - sequestration, these kinds of cuts are going to be felt unevenly across the country. If you're in Fayetteville, North Carolina, where there are military operations, you are going to feel it much harder there than you are perhaps in Minnesota, where there aren't these kinds of operations.

If you're in the capital area in Virginia, Maryland, or D.C., those are areas that get a very large share of their economy from the federal government, as Alaska and Hawaii do, and those areas are going to feel the hardest hit. And it's going to be kind of a slow bleed in some of these places where you see government contracts being pulled back. You see workers being furloughed.

And that will spread across the country. As you see all of these effects take hold, it starts bleeding into other states as well that might not have as large of a federal workforce and eventually the total nationwide impact will be measurable but it's going to be devastating to certain communities and it's going to be - a lot of people will be shrugging their shoulders in parts of the country where you don't have federal workers or federal contracts.

MARTIN: Is there - we focus a lot on the negative impact. Is there any silver lining to this? And I recognize that that is, in part, a philosophical question. This, in part, depends on your worldview. But even from the standpoint of people who feel that this is terrible, is there any positive side of it for them?

REDDY: This isn't really a great way to deal with the longer term deficit problem. And that's one of the things that Marilyn just discussed, is when you look at the longer-term problems, it's not from this area of the budget - discretionary spending - it's from entitlements like Medicare and Medicaid.

But there is some benefit to going through this process. There are some people in the White House who felt back in 2011 that we should have gone through a government shutdown so we could experience this for the first time since the mid-1990s, what a government shutdown feels like, what all of these government agencies and government workers provide in our lives.

And this is what we'll be able to see in the coming weeks, as we see workers get furloughed, as we see services get cut back. Whether it's funding for Head Start or for teachers or for meat inspection, we'll see the effect of this. And we might actually have a more sensible conversation about what we should be cutting and what we shouldn't be cutting in our budget.

We will probably find out that there are some areas around infrastructure, some things that when you cut them you realize how bad it is. And it forces you to change from the rhetoric that all cutting is good to focus more smartly on what needs to be cut.

MARTIN: It reminds me of that play from the '60s, "Day of Absence," where all the servants magically disappeared, you know, one day and that people had to, you know, do their own laundry and all of this. It was a fantasy, but you know, nonetheless. Marilyn, what about you? You know, and also, Marilyn, you know, we're reminded that this is not the only big financial deadline facing...

GEEWAX: Right.

MARTIN: ...the government.

GEEWAX: No. We got past - I think we all have cliff fatigue. I think we're a little sick of going over all these cliffs but back in December, you remember, our Christmases were disturbed by all the talk about the coming fiscal cliff where tax - all these taxes were going to - tax breaks were going to expire. And then Congress dealt with that one back in December. Now here we are, dealing with this strange process called sequestration, that sort of randomly hits at government.

But on March 27, there's yet another deadline, which - this is getting tedious - but that deadline has to do with the way all of government is funded. The budget that they do, they haven't really had a real budget plan since 2009. Every time Congress just passes a - what they call a continuing resolution. We'll be hearing this phrase - CR - more and more frequently.

And the current continuing resolution is about to expire so they need to re-up that.

MARTIN: Yeah.

GEEWAX: That's another cliff.

MARTIN: That's another cliff. Sudeep, a final word from you on this. I mean this must be like deja vu all over again for you because, you know, at every turn this is the way we're covering the budget now. Is there any glimmer that people there are sick of it? That the policymakers are sick of it? That they see any way to get out of this cycle, which I think pretty much everybody agrees is dysfunctional.

REDDY: I think people are sick of this. This is basically the fifth time we've gone through this kind of an exercise. And now we will actually be able to see, with these cuts going into effect, what it means. We'll find that some of them aren't so bad and that maybe we can actually trim spending in certain areas. Maybe we don't need a military that's five times the next largest military in the world.

Maybe we can be just four times larger than the next military. So you'll see some of these effects. And you will actually be able to go through this and understand for the final time perhaps what it's like to cut a budget and what it actually means in the end.

MARTIN: Thirty seconds, Marilyn.

GEEWAX: One thing that I find sort of frustrating is that all these economists are here in town, they're in Washington because Washington just has such a huge impact on the economy. You would hope that this far into the Great Recession and the recovery that the focus would be back on housing and Wall Street and sort of the real economy. And yet for most economists so much of the focus is still on the drama in Washington. And that's really - that just has to be bad for the economy.

MARTIN: Marilyn Geewax is a senior business editor for NPR. Sudeep Reddy is an economics reporter with the Wall Street Journal. They join us from time to time to try to help us understand important issues in the economy and in politics. Thanks so much for joining us here in Washington once again.

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